Use the Information for the Question(s)below

question 11

Multiple Choice

Use the information for the question(s) below.
The current price of KD Industries stock is $20.In the next year the stock price will either go up by 20% or go down by 20%.KD pays no dividends.The one-year risk-free rate is 5% and will remain constant.
-The risk-neutral probability of a down state for KD Industries is closest to:

• A)37.5%.
• B)62.5%.
• C)40.0%.
• D)60.0%.

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Definitions:

Profit and Loss Sharing

An agreement between business partners to distribute the profits and losses of a business in proportion to their ownership stakes or agreed-upon percentages.

Liquidation Expenses

Liquidation expenses are the costs associated with selling or disposing of a company's assets during the cessation of operations, often part of winding down a business.